In Fry [2017] TC 05651 the FTT agreed with HMRC that the capital loss claim in Simon Fry’s tax return was due to his carelessness and should therefore be subject to a penalty, but given that is was unlikely that the unused portion of the claimed loss would be used the FTT agreed that the penalty should be calculated on the used portion of the loss only. Therefore the penalty was reduced from £163,192 to £5,183.

Fry loaned £10m to a Chelsea gym venture called KX Gym Ltd and a year later his loan was converted into shares in KXDNA Ltd. Fry made a tax relief claim in his 2009-10 return under Taxation of Chargeable Gains act 1992 (relief for loans to traders) for just over £10m, on the basis that his loan had been made irrecoverable.

HMRC opened an enquiry into the tax return and withdrew Fry’s claim to relief and issued a penalty on the basis that including the loss claim in his tax return was a careless inaccuracy.

Fry accepted that he had carried out an inaccuracy as he had incorrectly claimed capital loss relief but argued that he had filled the return correctly so therefore no penalty was due.

He called the penalty excessive as:

• the amount was disproportionate to his carelessness;
• special reduction should have been given; and
• the penalty had been miscalculated

Meg Wilson, CCH tax writer, said: ‘The taxpayer successfully argued that HMRC had used the wrong figure of potential lost revenue (PLR) in calculating the inaccuracy penalty. The FTT found that as the vast majority of the loss claimed was being carried forward, and the taxpayer had left the UK, there was no reasonable prospect of the carried forward loss being used and therefore the PLR should only have been the additional tax which became due as a result of correcting the inaccuracy.’

Fry [2017] TC 05651 is available here.